Suggestions
By analysing OODLZ business model and the benchmark, we devised different tokenomics recommendations to achieve the desired objective functions.
Total, max, and circulating supply
The proposed total supply of 1b is fine since the value does not impact the overall emission mechanism. We recommend setting, encoded in the smart contract, total supply = max supply. Hence, stakeholders are confident that the project’s owner cannot arbitrarily change the overall supply.
The initial circulating supply should be set at least above 20% not to have too many tokens yet to be released, which needs to be absorbed by an elevated constant demand. We suggest aiming at 30% total supply unlocked at TGE.
Resources:
How To Design Tokenomics For Your Cryptocurrency: The Basics Of Creating Your Token
Fair token distribution
Looking into the provided initial token distribution (see screenshot in the Observations section), we noted that the amount of tokens distributed to different entities differs from what we have seen in the industry.
Best practices recommend a balanced distribution such as:
Private allocation is smaller than public's (assumed that private price < public price).
Team allocation is slightly higher than investors' to keep control of the supply.
Treasury allocation of more than 10% ensures the project's long-term viability.
Incentive rewards should be based on the expected demand and set accordingly. The benchmark analysis tells us to allocate at least 15% to this category.
Liquidity supply should be at least half of the total sale allocation to ensure high market dept and minimise price impact on trades.
It is acceptable to have a 10-15% max price difference among different investors. The risk of having investors sit at very different prices lies in the fact that the ones who access the token at a lower price are in command of the others, creating market asymmetries. This is because investors tend to realise profits quicker, and if there is a selling opportunity, they dump the token on the market.
Below is a deepening into some categories to advise on further recommendations:
Airdrop supply
If the project's owner aims at distributing part of the total supply as an airdrop, make sure that the recipient of such allocation are people interested in the project (based on market research), so as soon as they receive tokens, they don't immediately sell for profit, instead, they keep them to use within the platform or for the staking purpose.
Float liquidity supply
It's essential to ensure a certain level of market liquidity since the beginning (i.e. unlocked at TGE) to let users exchange (buy/sell) tokens with the minimum price impact and slippage. We advise supplying liquidity to solid centralised exchanges (CEX) like Binance, Coinbase, Kraken, or Bybit, as well as decentralised exchanges (DEX) like UniSwap, SushiSwap, or PancakeSwap to increase the token visibility. It is also advisable to supply liquidity against different tokens to give users the freedom to exchange the token for any other they want, such as WETH/WBTC/USDC/USDT/DAI. Supplying liquidity lets users exchange the token on the market but also enables the project owner to earn liquidity providing's fees that could accrue to the project treasury.
Find below the available fee tiers on Uniswap (it’s the same as Sushiswap):
So, for your token you may want to select:
0.3% coupling with WETH/WBTC
1% coupling with stablecoins (like USDT/USDC/DAI)
This is because you are subject to impermanent loss (IL) when supplying liquidity to a DEX. It is the opportunity cost you incur to lock tokens by providing liquidity rather than simply holding them. The IL is more significant if the prices of tokens in a pair tend to diverge (positive or negative). Fees help to mitigate the potential loss due to this AMMs intrinsic mechanism, so for uncorrelated pairs (say $OODL vs $`USDC), higher fees tend to counterbalance IL, while lower fees are more suitable for more correlated pairs like ETH due to fewer IL risk. If you want to make it simple, just opt for 0.3%, which is the most used, for every pair. Finally, Balancer allows you to supply liquidity up to 8 tokens in a single pool by setting desired relative weight among tokens and provides for any preferred fee level (manually inserted).
You may also want to deepen how you can list your token into CEXs. You can opt for the Launchpad service Binance offers for projects without a token. There are no fixed requirements, and they generally ask for "seriousness" (project progress' constant updates, having an MPV already launched, …).
Resources:
Optimising your token distribution
Vesting schedule and Lock-up periods
As a first consideration, we recommend implementing the token vesting schedule with a third-party platform like Blockius. This way, the project showcases its entire vesting schedule transparently and instils stakeholder trust. This is to avoid the team controlling many tokens that can be sold or cancelled to the token release program.
For the vesting schedule, the team should show commitment toward the long-term success of the protocol. There are no reasons the team wants to reduce its exposure before its investors can.
To do that, we recommend the following:
Team's cliff period > Investors' cliff period
Team’s vesting period > 1.5 * Investors’ vesting period
The public supply is generally 100% released at TGE without any cliff or vesting schedule. We suggest increasing the vesting schedule period for categories already provided to relieve the first months' emissions and distributing tokens more slowly without generating supply shocks. The ideal distribution would last at least 3/4 years before fully emitted. The vesting distribution should be smooth without causing large unlocks after long waiting periods. This can induce token holders to sell their tokens before other parties can, harming the rest of the market. Ideally, a daily vesting schedule, instead of weekly/monthly, helps to mitigate such risk.
As per allocation considerations, the community rewards category should account for more than the current to ensure enough tokens to distribute to users over time.
Resources:
Token Vesting: The Complete Guide to Creating Vesting in Tokenomics
Token emission and inflation
OODLZ should aim for a <150% annual inflation rate to mitigate the risk of diluting existing token holders' value and avoid high selling pressure. Per the current emission schedule's observations, the inflation seems too high, especially during the first year. So, to reach a more balanced issuance over time, we recommend releasing new tokens for at least over 36 months by re-balancing the annual inflation rate among different periods. Still, starting with a more aggressive inflation rate in the first year makes sense, but going for slightly less than the current could be worth it.
See here the new token emission and schedule.
Exploring a dynamic incentive mechanism to react to changes in token demand could also be worth it. This way, OODLZ may want to reduce token staking incentives when there is more token demand (i.e. higher % token staked) while increasing them when the token demand is low. This would resemble the Bitcoin mechanism in which the mining difficulty adjusts based on the number of miners trying to solve the block. Such an emission mechanism stimulates demand when it comes low and preserves capital when a high incentives level is not required.
Resources:
Rethinking emissions schedules
Demand drivers
Observations
Adding new token utilities and staking mechanisms is advisable to increase the overall demand. Currently, demand needs to be balanced with total emissions.
As stated before, the protocol offers most of the cashback in FIAT currency, thus lowering token selling pressure due to users' operating expenses. Even so, if the only demand driver is staking, the token still needs opportunities to be exalted. As incentives disappear, the demand source will no longer be actual, resulting in fewer users’ interest to utilise the platform.
Next Steps / Suggestions
Encourage long-term staking: Implement mechanisms that reward long-term stakes, such as time-based bonuses or reduced withdrawal fees for more extended lock-up periods. This can encourage users to stake their tokens for extended periods, reducing token selling pressure and increasing the locked percentage of circulating supply. A user could also be slashed and receive fewer rewards if she un-stakes too early. Additionally, offer them flexible staking options.
To compare, also StormX offers different bonus multipliers based on the number of tokens staked. You may want to design your staking rewards structure similarly, offering higher yields for users who stake more tokens.
Un-staking progressive tax: We also mention the potential benefit of applying a progressive tax proportional to tokens staked to users seeking to un-stake their tokens. One portion of the taxed tokens could be distributed pro rata to other stakers in the pool, and the other portion may be burned.
Token-based lotteries or competitions: Organise regular lotteries, contests, or giveaways where users can enter using tokens. This creates additional demand for tokens and encourages users to acquire and hold them.
Exclusive access to sales or promotions: Offer token holders access to exclusive deals, promotions, or discounts from partner stores. This can incentivize users to hold tokens and participate in the platform.
Referrals and discounts: To offer a referral for users' shopping could also increase the demand for the token. Another strategy is incentivizing token holdings by providing discounts or reduced fees when staked.
Note that rewards are more effective when distributed following value-creation user activities. So, it would be advisable to identify desired target user behaviours and convey incentives toward such actions.
These strategies can create a more sustainable staking ecosystem that rewards long-term commitment and token holding. Most will also depend on the promised yield and how long it can be sustainable. The yield should always be less than company earnings (or adoption/growth) and must be adjusted over time based on the token price and demand dynamics.
Resources:
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